Survival is theme at USAir meeting Shareholders assured that carrier won't be sold piecemeal

November 29, 1995|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

ARLINGTON, Va. -- With a takeover by United Airlines ruled out, USAir Group Inc. assured its stockholders yesterday that it can survive on its own and that it won't break off portions, such as its lucrative East Coast routes, to be sold piecemeal.

"There are absolutely no plans to sell off parts or pieces of USAir," Chairman and Chief Executive Officer Seth E. Schofield told the airline's annual meeting.

Mr. Schofield said that despite the collapse of recent merger talks, the airline is not in danger and expects to end the year with nearly $1 billion in unrestricted cash.

"Let me assure you that survival of our company is not an issue," he said. "The issue we're facing today is how we go about maximizing the value of USAir's franchise."

Lured by USAir's strong route system, United Airlines had been considering a takeover of USAir, which is the largest carrier at Baltimore-Washington International Airport. A takeover would have allowed United to establish a shuttle along the East Coast similar to its West Coast operation.

But two weeks ago, amid strong opposition from its employees, the Chicago-based carrier said it would not pursue an acquisition. United workers own 55 percent of the company.

A recent report in Business Week indicated that United's chairman, Gerald Greenwald, still wanted to buy a portion of USAir.

While Mr. Schofield emphatically denied that USAir would consider such a move, he said it might pursue other alliances with United, such as joint marketing agreements or shared frequent flier programs.

He said the preliminary talks with United -- and to a lesser extent American Airlines -- had not stemmed from any sense of panic over USAir's future.

"We were not out there trying to sell the company," he said. "It was not a distress sale, not a fire sale. We were looking at long-term strategic opportunities."

But last year, survival appeared to be a crucial issue.

The airline lost $684.9 million even as other major carriers recovered from the worst financial period in the industry's history.

Since then, thanks to industry-wide changes and a series of strategic moves by USAir -- including a 15 percent cut in its 5,000 daily flights and $500 million cuts in non-labor costs -- the company has seen a significant turnaround.

During the first nine months of 1995 it earned $59 million, compared with a loss of $362.9 million in the same period a year ago.

Revenues for the second and third quarter were the highest in the company's history.

After experiencing back-to-back profits in the second and third

quarters, USAir is predicting its first profitable year since 1988.

"We have experienced a very dramatic turnaround over the past 16 months," said the 57-year-old Mr. Schofield, who announced his retirement this fall but agreed to stay on until a successor is named.

The company plans to cut no more than 2 percent of its flights in 1996, he said.

Among other things, he cited growing consumer confidence in the airline -- bouncing back after two major crashes in 1994 -- and industry changes that have lessened competition, particularly on the East Coast.

Among the most significant developments was the demise of Continental's CalLite discount program, which had forced USAir to reduce its fares dramatically.

But USAir still is faced with the difficult task of cutting its costs -- the highest in the industry partly because it flies much shorter routes -- and remaking itself into a long-term profitable venture.

As part of its operating strategy, the airline has cut nonhub flights and has shifted to commuter rather than jet service on routes with fewer passengers.

In addition, it is extending the length of its average flight by adding more international and transcontinental service.

In July, USAir broke off collective negotiations with its four major unions.

It is now beginning talks individually with those labor groups.

Initially, USAir had hoped to secure $500 million a year over the next five years in wage and other cuts.

Mr. Schofield said yesterday that the airline would consider giving employees an ownership stake in the company "for the right kind of concessions."

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